Liquidity squeeze puts power sector in disarray
The hope of achieving stable electricity supply in the country may be mirage except the federal government takes urgent measures to stem the tide of illiquidity currently confronting the nation’s electricity distribution companies, the nation’s hope of stable power supply in the near future may remain a mere dream.
Only last week, the Nigerian Electricity Regulatory Commission, NERC, in its Quarter 1 2018 Report, disclosed that the 11 Discos’ debts to the Nigerian Bulk Electricity Trader, NBET and Market Operator, MO, was a staggering N112billion
According to that report, out of a total indebtedness of N163.1billion to NBET and MO by Discos, they were only able to pay only N51.2billion, this is just merely 30 percent of the total owed.
The report coming from NERC indicates a very gloomy picture about the industry because out N171.1billion billed to customers in the first quarter of 2018, only N106.6billion was recovered, representing 62.3 percent collection efficiency.
Power sector insiders disclose that it could be difficult if not outrightly impossible for the Discos to perform optimally given their weak financial positions and inability to generate funds from their operations owing to several constraints. Specifically, the non-implementation of the cost reflective tariff has been cited as the key factor responsible for the Discos weak financial base in the last three years.
NERC attributed Discos liquidity challenge to non-cost reflective tariffs, high technical and commercial losses as a result of consumers’ apathy to payment owing to their disdain for estimated billing and poor quality of supply in most Load centres.
Therefore, of every N10 worth of electricity sold during the quarter under review, N3.8 is uncollected.”
To break this cycle of indebtedness, consensus among industry operatives is that NERC, the regulatory authority must give a nod to a cost reflective tariff.
However some Power sector insiders are insisting that the NERC figures did not capture the total picture of Discos pathetic predicament.
According to them, the situation is more precarious than NERC has presented it. When you add the high interest charges on facilities these Discos were availed by their banks, huge CAPEX requirement for capital projects, recurrent expenses, other deductions etc, you will appreciate the frustration of these investors and why they are asking the federal government to come take back their assets,” a retired director at Power Holding Company of Nigeria, PHCN, said last weekend.
He said further: “No nation treats its investors as these investors have been treated. To expect them to perform optimally is not only unrealistic but totally impossible.”
He said when you look at the indebtedness NERC is talking about in respect of NBET.
“You deprive a distributor the opportunity to sell her product at cost reflective prices, contrary to the contract you signed, you now started billing her actual cost of the product from the factory. You now go ahead to record the difference between the actual cost and the price you approve for him to sell as debt for him in the books. Unless something fundamental happens to break the cycle, the indebtedness can only continue to grow in the books,” he said.
Another investors said there is no alternative to cost reflective tariffs, adding that the only problem would be who will pay the difference between the actual cost and the amount electricity is made available to end users. He said somebody definitely must pick that bill and that person cannot be the investor who invested his hard earned money and borrowed funds to buy the distribution assets .
“To resolve this solve this problem, government may have to turn to the Power Sector Recovery Programme, PSRP as a matter of urgency.”
PSRP envisions that market shortfall will be addressed through: an annual federal government budget that will include provisions for fully funding historical and future sector deficits from 2017 – 2015; establishment of cost reflective tariffs and lastly, a payment Assurance facility to be established by the Central Bank of Nigeria, CBN, to support NBET, and such similar facilities by the World Bank Group, IFC and MIGA.
Aside from allowing for cost reflective tariff, and the fact that the federal government has made some moves to provide funding for the sector, the government needs to intensify the efforts if it must tackle the power sector challenges.
Only recently the federal government, owners of 40 percent shareholding in the DISCOs, approved some N72billion financial facility to upgrade and expand Discos’ networks, earlier, a N39billion bailout for Discos metering plan was approved this year. Most remarkable was the N701billion Payment Assurance Guarantee introduced last year to raise monthly payment for electricity generation companies (GENCOs), a measure that has raised GENCO’s monthly payment through NBET from 80% to 20 percent.”
All these moves are commendable, but the fact of the matter is that funding the sector needs to be structured, carefully worked out and strictly adhere to in such a manner that such funding will achieve cost reflective tariffs. We cannot run away from cost reflective tariffs.
Olusola Bello